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Securitisation is not dead

Securitisation is not dead

By Michael Heise, chief economist Allianz Group/Dresdner Bank

Selling short

Selling short

Euromoney's coverage of past short selling regulations and questionable events is worth a look today

January 2007

Risk management: Hedge funds take stress test

Better guide to risk than VaR. According to some hedge fund industry participants, stress testing is becoming a more widely used measure of risk among prime brokers and managers.




“We’re seeing a growing number of hedge fund managers look at stress testing, in addition to VaR [value at risk], as part of their risk management,” says Lance Smith, CEO of Imagine Software, a software developer for investment management solutions. “The limitations of VaR have become more obvious in the light of some extreme market events such as [hedge fund] Amaranth’s blow-up.”

Smith continues: “VaR looks at historical correlation of risk factors, which is essentially a type of average. But in calculating risk in the event of an extreme situation, stress testing is more appropriate. VaR is expressed as a multiple of a typical daily movement. You can estimate the daily volatility of returns and then, if you see frequent P&L swings greater than that, you know there is something awry in the portfolio. It’s a good calculation of likely events. But...


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